Calculating Bear Bottoms

Discussion in 'Trading' started by Rabbitone, Mar 6, 2009.

  1. I would like to inject a little theory about market bottoms for the current bear market….

    Back in early 1990s I read an interesting article (TASC? sorry I didn’t save it) about bear markets which have other than the garden variety of economics associated with them (for example the tulip mania) that have always stuck with me. The author had researched unusual bear markets back, in some cases for centuries, in all different cultures, securities and commodities.

    The authors conclusions were that markets will appear wildly over sold for extended periods of time if no one can make sense of the current economics. Because of this, prices in this type of bear market always revert back to the longest time frames secular trends to correct to.

    The three conclusions the author stated was that unstable bear markets either
    1. retraced over 50% of the original long term move,
    2. went back and hit and or bounced around the long term trend line before starting back up or
    3. it retraced the entire gain (like 1929 to 1931) before starting back up.

    Let us take the S & P 500 as an example. During 2002 and 2003 I remembered this article. The internet crash appeared to have the unusual economics the author mentioned. After remembering this I was not surprised to see the S&P 500 retrace a little over 50% of the move from 1982 before it headed back up.

    Then there is today’s unusual economic bear market we can’t get our arms around. In this current bear market the 50% level was not an option, we went right through it and I don’t see us going to an S & P 500 in the 100s like the early 1980s. So that leaves the question where is long term support for the S & P 500.

    One method is to draw a rough trend line on a monthly S& P 500 chart using the 1982 lows and the 1987 lows. When I extend the line I see trend line support about 620 on long term basis (that number may be off + or – 10 from where I drew it or more). There are tons more tech analysis to support we are approaching a bear bottom such as money flow being in the same negative range as other bear markets and there are countless indicators at lows. But that is not the question.

    The question I’m asking is do you have a different method you want to share with us (or comment on the one I stated) about how a bottom for the S & P 50 could be calculated. For example, another method might be we will use in a regression channel with 1.0 to 1.3 Std. Dev. on a weekly S & P chart (could hit about 620) since august of 2008.

    How do you see it happening……..
  2. PMT & TRAP.

  3. 1) The Elliott Wave guys say that bull markets should be retraced 100%. Depending on your time frame, that bottom could occur at the 1995 low, the 1987 low, 1982 low or even lower back to 1933.
    2) Dividend yields need to be higher that P/E multiples.
    3) Bill Gates and/or Warren Buffett run for public office on the Communist Party ticket. :cool:
  4. You have some interesting notes about forming a market bottom. I’m curious about who the Elliot wave guys are you speak about? If they are right then we should be in Wave 3 down and pretty close to completion? I will have to dig out my copy of Advanced Get to see how far it predicts the bounce in wave 4.

    And comrade I would vote for Buffett. I like the way he thinks. Maybe he will let you and I stay in the trading collective gathering trade profits for the people’s government to pay off this mess.
  5. No method or nobody can forecast exact bottoms.
    Don't insist. Don't try to.

    Rather, focus on receiving dividends, so while you wait for the recovery, you are still receiving dividends.
  6. Maybe the 1933 low would be the target for the "huge, final wave down" that Prechter saw coming after 87 -- but never came :cool:
  7. kowboy


  8. charts


  9. Robert Prechter /
    #10     Mar 9, 2009